Ch2 (#6) - Discussion Board
• The "name-your-own-price" model is considered a reverse
auction. However, this model does not include RFQs or
consecutive bidding. Why is it called a reverse auction?
• Answer:
It is considered a reverse auction because it changes the
normal roles of a traditional auction. In this auction, buyers
indicate the goods and prices that they are interested in
purchasing. Sellers then evaluate this information and
decide to either provide the good at a specified price or to
forego the bid.
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.2 Diamonds Forever –
Online (p.45)
• The age-old business of gem buying is very
inefficient: Several layers of intermediaries
can jack up the price of a gem 1,000%
between wholesale and final retail prices
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.2 Diamonds Forever Online (cont.)
– American Don Kogen made his fortune in
Chanthaburi (Thailand)—one of the world’s
leading centers for processing gems
– He started by purchasing low-grade gems from
sellers that arrived early in the morning and
then selling them for a small profit to dealers
who arrived late in the day
– This quick turnover of inventory helped him
build up his capital resources
– He reached the U.S. gem market using
advertising
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.2 Diamonds Forever Online (cont.)
– Using faxes, he shortened the order time
– In 1998, Kogen decided to use the Internet—establishing
thaigem.com and sold his first gem online
– By 2001, the revenue from his online business reached
$4.3 million, and it more than doubled (to $9.8 million)
in 2002
– Online sales account for 85 percent of the revenue
– The buyers are mostly dealers or retailers such as WalMart or QVC
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Diamonds Forever Online (cont.)
– He buys raw or refined gems from all over the world,
some online, catering to the demand of his customers
– Thaigem’s competitive edge is low prices
– The proximity to gem processing factories and the low
labor cost enable prices significantly lower than his online
competitors
– Unsatisfied customers can return merchandise within 30
days, no questions asked
– Delivery to any place in the world is made via Federal
Express, at about $15 per shipment
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Prentice Hall & Dr. Chen, Electronic Commerce
Questions
1. Describe Thaigem’s business model, including the revenue model.
How are logistics and payments organized? (Visit thaigem.com to find
more details.)
The model is B2B (selling to distributors). The revenue model is
made as an intermediary, increasing the prices he paid
manufacturers before selling to buyers. Logistics appear to be
handled internally from Asia. Payments appear to be made on
account or through a merchant system.
2. Compare this entrepreneurial business to click-and-mortar gem
businesses, such as Tiffany’s online business (tiffany.com). Visit the
two sites and comment on the differences.
Student responses will vary. Thaigem appears to be more focused
on selling to distributors, while Tiffany targets individual buyers.
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Prentice Hall & Dr. Chen, Electronic Commerce
Questions
3. During the 2000-2002 shakeout of dot-coms Thaigem.com was
prospering. Why do you think it was not affected by the dot-com
downturn?
Thaigem’s business model was as a distributor, and it did not rely
on some of the less stable business models used by dot-coms.
4. Of the $40 billion annual sales in the gem industry, only about 2
percent are done online. Do you think that selling gems online will
grow to more than 2 percent? Why or why not?
Student answers will vary. Students will debate between the
benefits of EC for businesses and the desire to examine gems
before purchase.
5.Go to gemcentral.com and compare it with thaigem.com.
Please note, gemcentral.com is not a working URL at this time.
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Prentice Hall & Dr. Chen, Electronic Commerce
Real-World Case: Rosenbluth
International – A New Way to Compete (p.75)
1. Describe the strategy the company uses to counter
disintermediation.
The company is providing additional value to customers by
focusing on one market, and then deploying EC applications
to assist them.
2. Explain how EC facilitated the strategy.
The company has embraced EC and uses a variety of IT/EC
applications to assist clients.
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Prentice Hall & Dr. Chen, Electronic Commerce
Real-World Case: Rosenbluth
International – A New Way to Compete (p.75)
3. Analyze the competitive solution using Porter’s five forces model.
Barriers to entry – large threat, Internet-based travel services can be
easily deployed (note Rosenbluth’s use of proprietary systems to
counter this)
Substitutes – marginal threat, customers need to travel (note use of IP
conferencing as a threat)
Suppliers – large threat, significant power of the airlines to set price and
commissions
Buyers – large threat, can bypass the channel
Rivalry – large threat, as many companies compete for smaller profits
4.
Check carlson.com to find its EC initiatives. Compare these to
Rosenbluth’s.
Both firms provide corporate travel management services. This
outsourcing is what was done internally in some companies. Both
companies focus on corporations, and provide a wide variety of EC
enabled services.
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Case 2.4 Reverse Mortgage
Auctions in Singapore (p.54)
• Homebuyers in Singapore, find the lowest
mortgage rates at Dollardex
(dollarDEX.com)
– Reverse auctions are combined with “group
purchasing” saving:
$20,000 over the life of a mortgage for each
homeowner
$1,200 in waived legal fees
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.4 Reverse Mortgage
Auctions in Singapore (cont.)
• Dollardex’s first project:
– The site invited potential buyers in three
residential properties in Singapore to join the
service
– Applications, including financial credentials,
were made on a secure Web site
– Seven lending banks were invited to bid on the
loans
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.4 Reverse Mortgage
Auctions in Singapore (cont.)
– In a secure “electronic room,” borrowers and
lenders negotiated final terms
– After 2 days of negotiations of interest rates and
special conditions, the borrowers voted on one
bank
– 18 borrowers on the United Overseas Bank
(UOB), paying about 0.5 percent less than the
regular mortgage interest rate as well as the
waiver of the legal fees
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.4 Reverse Mortgage
Auctions in Singapore (cont.)
• UOB generated $10 million of business
• Dollardex allows customers to participate in
an individual reverse auction if they do not
want to join a group
• Flexibility is high; in addition to interest
rates, banks are willing to negotiate down
payment size and the option of switching
from a fixed-rate to variable-rate loan
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.4 Reverse Mortgage
Auctions in Singapore (cont.)
• On average, there are 2.6 bank bids per
customer
• As of summer 2003 Dollardex.com also
offers car loans, insurance policies, and
travel services
• Allows comparisons of mutual funds that
have agreed to give lower front-end fees
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.4 Reverse Mortgage
Auctions in Singapore (cont.)
• Provides unit trusts in which you want to
invest
• Sets up a gift registry page for your
wedding and invite your givers to place
funds in them
• Reports and advice are also available online
as well as face-to-face
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Prentice Hall & Dr. Chen, Electronic Commerce
Questions (p.54)
1. How is the group purchasing organized at dollardex.com? What
services are offered?
Group purchasing is organized around a reverse auction process. This
process allows homeowners to negotiate favorable rates on home
mortgages in addition to waiving legal fees.
2. Why does a reverse auction take place?
A reverse auction takes place because the traditional auction roles have
been reversed. In this auction, the banks are bidding for the customers'
business.
3. Can this model exist without an intermediary?
It would be very difficult for this model to exist without an intermediary.
The intermediary in this model creates groups of purchasers, solicits
banks and assists negotiation.
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Case 2.3 Electronic Catalogs at
Boise Cascade (p.49)
• Boise Cascade Office Products
– $4-billion office products wholesaler customer
base includes over 100,000 large corporate
customers and 1 million small ones
– 900-page paper catalog used to be mailed to
customers once each year
– Boise also sent mini-catalogs tailored to
customers’ individual needs based on past
buying habits and purchase patterns
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.3 Electronic Catalogs at
Boise Cascade (Cont.;p.49)
• In 1996, the company placed its catalogs
online
– Customers view the catalog at boiseoffice.com and
can order straight from the site or submit orders by email
– The orders are shipped the next day
– Customers are then billed
• In 1997, the company generated 20 percent of
its sales through the Web site
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.3 Electronic Catalogs at
Boise Cascade (Cont.;p.49)
– Boise expects the Internet business to generate
80 percent of its total sales by 2004
– Boise prepares thousands of individualized
catalogs for its customers
– paper customer catalog, primarily because As
of 2002, the company has been sending paper
catalogs only when specifically requested
– It used to take about 6 weeks to produce a
single of the time involved in pulling together
all the data
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Prentice Hall & Dr. Chen, Electronic Commerce
Case 2.3 Electronic Catalogs at
Boise Cascade (Cont.;p.49)
• Now the process of producing a Web
catalog that is searchable, rich in content,
and available in a variety of formats takes
only 1 week
• One major advantage of customized
catalogs is pricing
• Boise estimates that electronic orders cost
approximately 55 percent less to process
than paper-based orders
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Prentice Hall & Dr. Chen, Electronic Commerce
Electronic Catalogs at Boise Cascade (cont.)
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Prentice Hall & Dr. Chen, Electronic Commerce
Questions
1. What are the advantages of the electronic catalog to Boise Cascade?
To its customers?
For Boise Cascade the benefits of the electronic catalog include:
decreased costs to produce catalogs, quicker turnaround time in
production, ease in creation of differentiated pricing and lower
sales processing costs. The company's customers also benefit.
They receive their catalogs more quickly with a customized
selection of products.
2. How are the customized catalogs created by Boise Cascade?
Existing catalog and product information are digitized and stored
in a database. Specific products and groups of products are
selected for the customer and added to that customer’s customized
catalog. This catalog can then be delivered through print or
through the Web.
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